An employee has started her maternity leave and is receiving Statutory Maternity Pay (SMP). She has now been given a backdated pay rise. Does this affect her SMP payments in any way?

The decision of the European Court of Justice (ECJ) in 1996 in the case Gillespie v. Northern Health and Social Services Board forced a change in the way that entitlement to SMP is calculated. Whether a woman in entitled or not to SMP is, among other factors, dependent on whether her average earnings in the "relevant period", i.e. an eight week period preceding the 14th week before her baby is due, are at least as much as the NI lower earnings limit in force at the time. The lower earnings limit for 2004/05 is £;79 per week. If she satisfies this and the other qualifying factors, she is entitled to be paid SMP for 26 weeks, with payments at,

• for the first 6 weeks, 90% of average weekly earnings, even if less than £;102.80,
• for the remaining 20 weeks, the lower of £;102.80 and 90% of weekly earnings.

If she does not satisfy the earnings condition, she is not entitled to SMP. However, she may be entitled to maternity allowance, a state benefit that may be paid when earnings are lower.

Therefore, if a woman becomes entitled to a backdated pay rise after her SMP payments have been calculated, and the date to which the increase is backdated is within or before the relevant period, her entitlement to SMP could be affected in three different ways. The following notes also apply to Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP), as indicated below.

Rate of SMP for the first 6 weeks
The woman's average earnings in the relevant period must be recalculated, taking the pay rise into consideration. It should be remembered that it is not only the basic rate of pay that is affected. She may also have received overtime, bonus or commission payments during that 6 week period, the calculation of which may be based on the increased basic rate. Any such payments must also be recalculated to give a true average earnings figure for the relevant period.

If she has not yet started her maternity leave, the SMP must be increased to 90% of the recalculated average earnings for the first 6 weeks. If she has already started to receive SMP, she must be paid the amount by which 90% of the recalculated average earnings exceeds 90% of the original average earnings for the 6 weeks.

This situation cannot arise with SPP and SAP.

Rate of SMP for the remaining 20 weeks
For a woman with average earnings of more than £;114.21 per week (£;494.93 per month) when they were originally calculated, 90% of average earnings will always be equal to or more than £;102.80. Therefore, the rate of SSP for the full payment period will be £;102.80 per week. Even if her average earnings increase as a result of the pay rise, there will be no increase in the weekly SMP payment of £;102.80.

However, if her average earnings were £;114.21 per week (£;494.93 per month) or less, the weekly SMP payments for the remaining 20 weeks would be below £;102.80. The application of a backdated pay rise would have the effect of increasing the weekly SMP payments, but if the increase were to more than £;102.80, it would be limited to £;102.80.

If she has not reached her seventh week of payment, the SMP for the 20 weeks must be increased to the new amount. If she is already beyond the seventh week, the rate of the remaining payments must be increased to the recalculated amount and she must be paid the excess amount for the earlier weeks.

This situation also applies for SPP and SAP, but for the entire period of payment, i.e. the one or two weeks for SPP, and the full 26 weeks in the case of SAP.

Entitlement to SMP instead of maternity allowance
If the woman was not entitled to SMP because her average earnings were too low, she may or may not have been able to claim maternity allowance. If the recalculation of her average earnings shows that she would have been entitled to SMP after all, she should be asked to obtain a statement from her Jobcentre Plus office giving the total amount of maternity pay, if any, that she received. She should be paid the difference between the total amount that the employer would have paid using the recalculated average earnings and the amount that she actually received in maternity allowance.

The employer may, of course, recover the appropriate percentage of any additional payments made to a woman in these circumstances.

This situation cannot arise for SPP and SAP.

Examples

1. A woman has average earnings in the relevant period of £;200 per week. The employer determines that the payment for each of the first 6 weeks will be £;180, and for the remaining 20 weeks will be £;102.80. She receives a backdated pay rise part way through the maternity pay period that gives her recalculated average earnings of £;210. Her payments for the first 6 weeks should, therefore, have been £;189, and the employer pays her an additional £;54 (i.e. 6 weeks @ £;9).
   
   
2. A woman has average earnings in the relevant period of £;110 per week. The employer determines that the payment for both the first 6 weeks and the remaining 20 weeks will be £;99 per week. She receives a backdated pay rise before starting her maternity leave with the result that her recalculated average earnings are £;115. The employer changes her payments to £;103.50 for the first 6 weeks, and to £;102.80 for the remaining 20 weeks.
   
   
3. A woman has average earnings in the relevant period of £;75 per week. She is not entitled to SMP. She claims maternity allowance and receives £;67.50 per week for the full 26 weeks. She receives a backdated pay rise after the maternity allowance payments cease. Her recalculated average earnings are £;80 per week. The employer calculates that, if she had been entitled to SMP, he would have paid her £;72 per week. He pays her an additional £;117 (i.e. 26 weeks @ £;4.50).

Look out for coming changes!
The procedures described above apply for the 2004/05 tax year. The rules are to be amended but it is not yet known whether the changes will take affect from April 2005 or some later date.

As described in the Newsletter of 9 April 2004, the ECJ ruled in the case Alabaster -v- Woolwich plc and the Secretary of State for Social Security that the UK government had incorrectly applied the decision of the ECJ in the 1996 case Gillespie v. Northern Health and Social Services Board by requiring only that average earnings be recalculated if a backdated pay rise affects the calculation in the relevant period. The intention of the finding in the Gillespie case was that a woman's average earnings should be recalculated if she would have received a pay rise, had she been at work, at any time between the start of the relevant period and the end of the period of paid maternity leave.

The government is therefore required to introduce new procedures for determining SMP payments that will take into consideration the effect of any pay rise that a woman would have received if she had been at work. As the period between the start of the relevant period and the end of paid maternity leave could be almost a year and, during that period, most women would have received a pay rise, the implications are that the rate at which SMP is paid will need to be recalculated in nearly every case.

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